Check out today's top analyst calls from around Wall Street, compiled by The Fly.
NEEDHAM CUTS NETFLIX TO UNDERPERFORM: Needham analyst Laura Martin downgraded Netflix (NFLX) to Underperform from Hold without a price target. The streaming company has consistently stated it will not have advertising, which will result in U.S. subscriber losses, Martin tells investors in a research note. She projects Netflix will lose 4M U.S. subs in 2020 at its premium priced tier of $9-$16 per month. The company must add a second, lower priced service to compete with Disney+ (DIS), Apple+ (AAPL), Hulu, CBS All Access (VIAC) and NBC's Peacock (CMCSA), each of which have $5-$7 per month choices, contended Martin. The analyst, who believes Netflix's balance sheet "cannot withstand lower revenue," recommended a six-to-eight minute per hour ad load to supplement a $5-$7 monthly consumer fee. She does not think the company's international subscriber growth can support its valuation, and would find the stock more attractive around $260.
JPMORGAN CUTS CHURCH & DWIGHT TO UNDERWEIGHT: JPMorgan analyst Andrea Teixeira downgraded Church & Dwight (CHD) to Underweight from Neutral with a price target of $65, down from $74. Some of the company's recent pricing actions may continue to have volume implications over the next few quarters, Teixeira told investors in a research note. She believes that Church & Dwight's "long-cycle of outperformance and market share gains at risk," the stock will de-rate from its current premium to peers back to the average over the past five years. The analyst also thinks the company's most recent acquisitions will prove less accretive to growth as devices/tools are in categories that have less recurrence of purchases or parts re-ordering, and are less scalable against its predominant channels. In addition, consensus estimates for Church & Dwight's 2020 are too high, contended Teixeira.
GOLDMAN SACHS CUTS INTERNATIONAL PAPER TO SELL: Goldman Sachs analyst Brian Maguire downgraded International Paper (IP) to Sell from Neutral with an unchanged price target of $40. The analyst has concerns over containerboard pricing in 2020 as well as earnings risks at other parts of the company's business. In the last three months, International Paper shares have outperformed the market despite downward revisions to 2020 consensus estimates, Maguire said. As a result, the company's valuation level is now in line with its historical average, despite heightened risk of containerboard price cuts, added the analyst. With his expectation for an 8.4% increase in North American capacity to enter the market starting in 2020, and weak demand from a slowing industrial economy, Maguire believes there will be further containerboard price cuts in 2020. The analyst also downgraded Packaging Corp. of America (PKG) to Sell.
WELLS FARGO CUTS VENTAS TO UNDERPERFORM: Wells Fargo analyst Todd Stender downgraded Ventas (VTR) to Underperform from Market Perform with a price target of $56, down from $62. The analyst said he appreciates the REIT's diversification across medical office, life science, and hospitals, but he expects its senior housing exposure which accounted for 57% of revenue in the most recent quarter to determine share performance. Stender added that the latest quarter also revealed "continued negative growth without the prospects for any immediate turnaround" and that the REIT's prospects are looking bleak amid oversupplied conditions. If these are sustained, Stender expects Ventas to offer rent concessions to existing triple-net tenants as well as consider incremental asset sales in 2020, further pressuring its FFO.
NOMURA HAS RESTRAINED OPTIMISM ON APPLE 5G SALES: Nomura Instinet analyst Jeffrey Kvaal interprets November's China MIIT smartphone data from his colleague Manabu Akizuki as a positive for Apple. Annual revenues in Greater China look set to return to growth, Kvaal told investors in a research note. The analyst now expects Apple to launch four 5G models in 2020, including a smaller variant. Apple is "sensibly seeking" to balance operators' 5G interest with its materially higher bill of materials, says Kvaal. He has "restrained optimism" for 5G sales in 2020 and kept a Neutral rating on Apple with a $225 price target.
RBC CAPITAL INITIATES RESTAURANT SECTOR: Restaurant Brands (QSR), Domino's Pizza (DPZ), McDonald's (MCD), and Starbucks (SBUX) were initiated with Outperform ratings by RBC Capital analyst Christopher Carril, while Wendy's (WEN), Chipotle (CMG), Dunkin' Brands (DNKN), Brinker (EAT), Yum! Brands (YUM), and Texas Roadhouse (TXRH) were initiated with Sector Perform ratings.
Carril initiated coverage of Restaurant Brands with an Outperform rating and $77 price target. The analyst cited the company's "attractive" valuation relative to its peers at 16-times his expected FY21 EBITDA. Carril also noted Restraurant Brands' "strong" unit and system sales growth at Popeyes and Burger King, though he sees the Tim Horton performance as the key unlocking value in the stock.
Carril initiated coverage of Domino's Pizza with an Outperform rating and $337 price target. The analyst is positive on the setup in the stock heading into easier comparisons and the likelyhood of less impact from 3rd party delivery competition. Carril further expects Domino's Pizza's "best-in-class" unit growth and more achievable same-store stales outlook supporting the stock's continued outperformance.
Carril initiated coverage of McDonald's with an Outperform rating and $218 price target. The analyst noted that the stock has come under pressure in 2019 due to below long-term-target earnings growth, but he sees "attractive opportunity" in the shares after its "substantial" investments materialize into "continued top-line momentum", leading to accelerated earnings and free cash flows next year and beyond.
Carril initiated coverage of Starbucks with an Outperform rating and $97 price target. Carril said he believes changes at the company in recent years position it well for ongoing "strong," double-digit earnings per share growth, making it a "rarity" among larger cap consumer names. The analyst added that comp acceleration in recent quarters "appears sustainable," offsetting near-term earnings headwinds.
